does the file need to be extracted to my computer and placed on my sd card from my computer or can i just download the entire .zip file directly to my phone, and install from zip when i get into recovery using bootstrap? also i have never had cyanogen mod on my phone before this should place the actual rom on there am i right? thanks alot guys

Find RSDLite for windows online, then follow the installation instructions in the thread I linked. You will need to wipe back to stock, then go to About Phone and check for updates. Get the newest update (gingerbread) and then you'll have to root it, get bootstrapper, then load the zip file from your SD card, no need to extract.

Edit im on DROID 2 it's that I rooted using DROID 3 method so why do I need to go back?

Sent from my DROID2 using DroidForums

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If you got the OTA GB update and rooted with D3, then all that's left is to flash the rom in recovery. Put the CM7 zip file on your SD card, reboot recovery, then choose install zip from SD card > select the file and hit it. You'll also want to get gapps too, flash that at the same time.